Brazil’s post-election market rout has put fiscal policy back in focus, with HSBC warning that uncertainty over Luiz Inácio Lula da Silva’s next administration could keep assets under pressure after the Ibovespa fell 13.88% in one session.
On Oct. 26, the first trading day after the Oct. 25 runoff, the Ibovespa closed at 176,608.23 points, B3 reported. The commercial U.S. dollar rose 8.25% to 5.40 reais. The Superior Electoral Court (TSE) said Lula won 51.79% of valid votes, or 64,256,232. Flávio Bolsonaro received 48.21%, or 59,826,041.
In an Oct. 28 report, HSBC Private Bank shifted its view of the real from bullish to neutral. It also lowered its views on Brazilian equities and local-currency debt from mild overweight to neutral. The bank tied its cautious stance to uncertainty over fiscal policy and the incoming administration’s direction.
HSBC put campaign spending commitments at BRL 280 billion, or about 2% of gross domestic product, and warned that they could strain public finances. The bank said investor confidence could improve if the administration builds a workable relationship with Congress, maintains a fiscal plan investors trust and advances structural changes.
The next Chamber of Deputies will include 121 members from the Liberal Party (PL) and 88 from the PT-PCdoB-PV federation, according to the chamber’s election tally. The federation lacks a majority in the 513-seat chamber. That seat tally implies Lula’s government will need support from other lawmakers to pass legislation; the next legislature begins Feb. 1, 2027.
